Zero Visibility

Lou Gerstner disavowed the importance of vision eight years ago, when he became CEO of then beleaguered IBM. "The last thing IBM needs is a vision," he said, playing up the company's immediate ills. President Bush--the first one--famously lamented voters' focus on "the vision thing." Bill Gates once said that "being a visionary is trivial."

Ahem. Wall Street begs to differ. In the post-bubble slowdown, investors can't get enough vision from decision makers. In fact, in many cases they can't get any. And that's the problem.

Investing's latest buzzword is "visibility." "Are you tired of the word?" Merrill
Lynch recently asked in the title of a research report. It's heard so often in
brokerages that you could mistake a trading room for a training room at the
National Weather Service. Visibility near zero, say meteorologists, er, analysts.
Their fogged-over lenses are why stocks are in the dumps.

So the questions of the day are: What is visibility? How did we lose it? And where
can we get some more?

In a Wall Street context, visibility is simply what we know (or don't know) about
future business activity. When times are good, companies book orders at a fairly
predictable rate and can easily project sales and earnings for the next few
quarters. That's visibility. When times are tough, companies may still book
orders at a predictable, albeit slower, pace. They still have visibility; it's just not a
pretty picture. Either way, execs relay what they see to investors, creating a
comfort zone that keeps the stock from gyrating--even when it falls.

Un-visibility is an odd duck. It means that business has slowed to unexplainable
levels. Executives have no confidence in whether the pace of new orders will slow
further, stabilize, or pick up dramatically. That's typically when a company
clams up--then it's "so long, comfort zone," and the stock jumps around. Last week
web-design firm Macromedia forecast low visibility through the quarter, and its
stock fell 22%. Others with vision problems include Ericsson, Nortel and Corning.
Outside of telecom, Heidrick & Struggles, Kodak and Aetna need a
stockthomologist.

These companies were blinded by the dust of an economy skidding to a halt.
Corporate profits dropped 8% in the first quarter, a stunning reversal from the
double-digit growth forecast last year. Not wanting to get it wrong again, a lot of
CEOs are simply saying they'll have to wait and see. Worsening the vision void,
new regulations require that companies say nothing unless they say it in a venue
for all to hear. Regulation FD (fair disclosure) has curtailed guidance on earnings.

When will the skies clear? Tom Galvin, market strategist at CS First Boston, notes that the National Association of Purchasing Management's New Order Index has risen three months in a row. He expects mum companies to gain enough
confidence to start offering guidance when they report second-quarter results in
July. I'm all for making a sensible bet on beaten-up outfits that stand to regain
their sight in a few months.

If what they see is the start of a recovery, the stocks
will do well. Meanwhile, visibility hasn't been an issue for many
recession-resistant companies in health care, drugs, food, beverages and utilities.
And it's hard to lose money if you invest only as far as you can see.